Chapter 5-26 Auditing Programs and Assertions

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6-26 (Audit programs and assertions)
Assume that you are responsible for developing an audit program for a manufacturing client that sells to over 1,400 customers. You want to ensure your audit program addresses all relevant assertions for sales and accounts receivable. Address the following question in the context of the audit sales and receivables for this manufacturing client. Required

a. What is the purpose of an audit program?
The purpose of an audit program is to document decisions about the audit procedures that the auditor believes are necessary to obtain reasonable assurance that the financial statements are presented fairly in all material respects.  An audit program also lists the procedures to be performed, identify who performed the procedures and the date that the procedures were performed, and provide a cross reference to the working papers where the procedures are documented.  b. Explain why auditors translate audit assertions into specific audit objectives when developing an audit program. Auditors translate audit assertions into specific audit objectives to guide the process of collecting evidence.  Audit objectives are a fine-tuning of assertion and each audit objective requires unique evidence to maintain a conclusion about the audit objective.  c. If you are auditing the existence and occurrence assertion, what specific audit objectives should be accomplished by developing an audit program? Explain the purpose of each audit objective. Following is a list of the specific audit objectives that are relevant to the existence and occurrence assertion in the context of sales and accounts receivable: ·       Transaction Audit Objective - Occurrence: All sales that have been recorded during the period pertain to the entity and revenue was appropriately recognized.   ·       Transaction Audit Objective - Cutoff: All sales have been recorded in the correct accounting period and revenue has not been recognized for sales that should be earned in a...
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